FleetPros Blog

UPDATE: As of the publication on this newsletter, the Office of Chief Counsel for the IRS has released a memorandum confirming that tax exempt jurisdictions MAY sell fuel to another with no tax liability.

There is a ruling from the Internal Revenue Service (IRS) regarding Federal Tax Exempt government agencies registered under one Tax ID# may not sell fuel to other agencies registered with the IRS under a separate tax ID#.

Internal Revenue Service, Publication 510 (Rev. April 2009), Cat. No. 150141, Excise Taxes, Definition of Nontaxable Uses, No. 14, reads, “Exclusive use by a state, political subdivision of a state, or the District of Columbia means fuel purchased by the state or local government for its exclusive use. A state or local government is any state, any political subdivision thereof, or the District of Columbia. An Indian tribal government is treated as a state only if the fuel is used in an activity that involves the exercise of an essential tribal government function. Gasoline, diesel fuel, and kerosene used by the American Red Cross is considered to be the use of these fuels by a state.”

Assistant Greensboro Attorney, Tom Carruthers said the IRS has taken a no-exception interpretation of the regulation. In a letter to Guilford County Attorney, Mark Payne earlier this year, Carruthers wrote “they (Brunswick County) informed us (Guilford County) that the IRS has taken a hard line on all sales of fuel that are not the ‘exclusive use’ of the purchasing entity”.

According to an article in the on-line publication, Rhinotimes.com, “County No Longer Getting Gas From City” [1], the City of Greensboro, NC sold gas to Guilford County for 15 years. The IRS didn’t notify the City of Greensboro that it had to cease this practice. However, after the IRS conducted an audit of Brunswick County, NC they sent notifications to other North Carolina counties and cities, making officials aware that the IRS now considered the practice of selling gas to other entities against regulations. Brunswick County received a penalty from the IRS of up to three years in back taxes.

We at RMFMA, as well as other Fleet organizations, are concerned about the impact of this interpretation of the ruling and will continue to monitor what the outcome is and report it to our membership. Many of you may not have heard of this discussion, so we thought we would share it with you. You may want your legal department to look into this as well.

We appreciate our fellow Fleet professionals monitoring this working to get a clear understanding for everyone. Christopher D. Amos, CAFM wrote a letter to the U.S. Internal Revenue Service Commissioner, Douglas Shulman. Here is an excerpt from his letter stating “In 26 USC 6416(b)(2), federal law defines specified uses of fuel where the excise tax will not apply, including fuel sold ‘to a State or local government for the exclusive use of a State or local government.’ (Emphasis added) The statue does not require that the fuel be for the exclusive use of the local government that purchased the fuel, but must be for the exclusive use of a State or local government.” He has also requested a meeting with the Commissioner and his staff.

​Whether you’re a private fleet, a government fleet, or even if you are a retail maintenance organization, proper parts/inventory management can and will impact your bottom line. Improper operation of your parts storeroom directly affects everything from technician productivity and repair times to customer satisfaction and your bottom line.

If you maintain vehicles, having a parts storeroom is one of the areas that can literally make or break your organization’s bottom line. Lack of parts increases service turnaround time, lowers technician productivity and the expediting of parts adds cost in at least freight charges not to mention buying it from the first vendor without checking your other vendors for price comparison. Too many parts add to your expenses and lead to obsolete parts on the shelf.

Proper inventory controls can help you keep these risks to a minimum and increase your bottom line. You will have to run reports to give you the data you need to monitor your movement (or turns), obsolescence, value and count, to name a few.

Ways to Reduce Your Risk:

Securing your parts storeroom- no part will leave the storeroom without being issued through your FMIS or work order system. No technicians allowed in parts storeroom not escorted by parts employee or manager.

PM Due reports as sent to end users- allows for kitting of PM supplies or, at a minimum, having parts on the shelf as PM arrives.

Timing your parts on hand for a particular make and model of vehicle / equipment within your fleet and cross referencing to the remaining life of that vehicle.

Seasonal changes have an impact on inventory, only your eye and direction will have a positive effect if you are looking for them and communicating with your Parts department.

Physical Inventory is the only way to verify the true value of inventory. Consider performing a quarterly physical inventory.

Cycle counts of one-fourth of your inventory per week allows you to find missing parts that should have been issued to a current work order

Detailed written job notes by technicians on work orders provides a method of cross checking parts used to perform tasks

Second check of work orders before moving to close status to verify ALL parts have been issued

Having professional parts personnel to manage the storeroom so technicians have their parts, those parts are correct, and parts are issued into FMIS or work order, is an absolute to properly manage your inventory. Communication between Service and Parts must be intact and lived as a team.

Fleet managers must face and manage inventory to have a chance to meet budgets as well as to set budgets for the upcoming year. Just when you thought your plate was full, I know. Be personally involved in fostering the relationship between Parts and Service with these targets on your radar. It is this writer’s opinion that, if your organization is not constantly monitoring inventory, you may be missing asset dollars in the coffers. In these lean times we have been facing, I hope this acts as a refresher, a focal point, and that you find some dollars you might have been missing.

What is the most important KPI in our business, Down Time, Fleet Availability, PM Compliance, Technician Productivity? What about Safety KPI’s, Number of Days Since Last Incident, Total Case Incident Rate, Number of Days Since Last Workers Comp?

Safety KPI’s are often overlooked and treated “as just a cost of doing business” but in fact accidents are preventable. Safety does not happen by itself; safety is a culture and must be groomed to become second nature by our employees.

If you are not monitoring your Safety KPI you should begin immediately. We measure our business with KPI’s and safety is no different, after all how are we going to make improvements if we do not know where we stand currently?

. How to implement a Safety Culture

Safety meetings

Take “Accident” out of the vocabulary, implement “Incident”

Employee empowerment to stop unsafe acts immediately

Safety must be led from the top down

Form Safety Committee with member from each level in organization under upper management.

Put safety in your budget

Provide employees with Personal Protective Equipment (PPE)

Safety policies for various operations

Implement Hazard Assessment to be completed before each task

Praise good safety practices as you see them

Disciplinary actions for employees who continue to break safety policies

Managers need to get out of their offices and walk work areas

Lead by example i.e safety glasses required in shop then managers need to make sure we wear our safety glasses when we are in shop

Reward employees for Safety milestones i.e. cook out for one year without a safety incident, anniversary patches for employee uniforms, 1 year, 2 year 5 year etc without a safety incident etc

Terminate habitual employees who are driving your safety KPI’s up

In a down turn economy we might think “I can not afford to spend money on safety”. Now more than ever we can NOT afford not too! If we evaluate what we spend on safety incidents, lost time, lost productivity, workers comp we will find preventing safety incidents is far less expensive than we think.

We as managers have a responsibility to our employees and they deserve to go home in as good as shape as they arrived. Our employees have a responsibility to follow our Safety Policies, use PPE provided and advise their manager is something is unsafe.

We are in the business of both predictable and preventive maintenance, is it not the same when it comes to Safety?

Knowledge is power. To remain competitive, fleets must capitalize on their efficiencies and maintain full visibility into their operations. Fleet managers who have access to performance information when and where they need it have the power to make decisions that maximize their resources and effectively cut costs. In order to optimize productivity, management needs control over what information they receive, when they get it, and how it is delivered.

Instead of scrutinizing reams of reports and spreadsheets, fleet managers and analysts might consider using custom dashboards. Just like the dashboard in your vehicle gives you key information on your RPMs, oil pressure, and those blinking lights that tell you are running low on fuel or the engine needs to serviced, business dashboards can give managers a quick and informative look into how their maintenance operations are running. Demand for dashboard applications continues to grow as fleets increase the information available about their operations and look to provide their personnel with tools to conquer that volume of data.

Most dashboard applications fall into the category of business intelligence. They process and condense data into summary values and key performance indicators (KPIs) to provide an overview of your operations. Graphical displays are a distinct advantage and a valued alternative to traditional reports. Couple that quick view with the ability to “drill down” to get the details and you have all the information you need in a matter of seconds.

Dashboard applications aren’t just useful for the Fleet Manager, but also for shop supervisors, parts clerks, and even technicians. If technicians had access to customized dashboards (i.e. their direct vs. indirect labor), would they become more productive?

Dashboards that have flexibility in their reporting periods are an advantage because extended time periods enable trend analysis for spotting serious problem areas early. Automating the dashboards is convenient and practical. Information that is current and always available from any computer is the goal. Talk to the Information Technology Department about placing dashboards on the inter- or intranet.

For more information on Dashboard Applications, talk to your fleet software provider or contact a fleet consulting firm.

No matter what we buy today, there are hidden costs associated in our purchase price. The manufacturers and vendors set the price of the part(s) to include all their associated costs and a profit. Government fleets agencies are not typically allowed to make a profit, but we should cover all of the related costs. We could hide those costs in a fully burdened shop rate, but as those costs climb, we are in jeopardy of not being market competitive. Changing the charge rate for labor to reflect only the maintenance related costs and adding parts markup to cover the cost of the parts operations allows the managers to better monitor and manage their operations and stay competitive.

There are different methodologies in calculating a parts markup. Here are some examples:

The total cost of your parts program divided by the cost of the goods sold = markup percentage.

Apply multi tiered approach - the higher the base cost of the part – the lower the markup percentage. An example would be a 5 % markup for a control arm on a garbage truck and a 30 % markup on an oil filter.

Now how do you define the total cost of your parts program? Some programs charge a flat mark-up percentage without fully understanding what that markup should cover. Some things to consider when determining the “total cost”:

Include the cost of breakage, loss, restock fees, etc.

Include the cost of obsolesce and surplus stock.

Include the cost of systems and maintenance.

Include the cost of training and certification of the parts staff.

Include a portion of the technician salaries and benefits, based on indirect activities related to parts.

Include the cost of parts contract specifications, bids, and purchase orders

Also remember, that the cost of a part rises every minute it is not used on a vehicle. If a part is ordered and then sits on a shelf, it continually accrues costs. Warehousing and labor for physical counts can quickly multiply. Parts programs, ideally, would only keep parts that turn over rapidly and thereby keep the cost of a part low. So when calculating total costs, be sure to consider the cost of keeping certain hard-to-acquire parts or parts with long lead time on the shelf.